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Distributism and Capitalism: Some contrasting features

This article is part of my posts on the economic system of distributism.  This is from practicaldistributism.blogspot.com which you can find here:

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G. K. Chesterton’s younger brother, Cecil, gave what is probably the most succinct definition of distributism, or rather of a distributist in an article he wrote in 1917.

A Distributist is a man who desires that the means of production should, generally speaking, remain private property, but that their ownership should be so distributed that the determining mass of families – ideally every family – should have an efficient share therein. That is Distributism, and nothing else is Distributism. … Distributism is quite as possible in an industrial or commercial as in an agrarian community. …[1]

This is an excellent definition of the formal economic arrangements of distributism, and moreover it points out the fact that distributism does not require that everyone become a farmer and that it will not hinder the progress of technology, as our critics sometimes assert. But while this definition highlights the structural aspect of well- distributed property ownership, which is the heart of distributism, there is more to distributism than that. For if distributism were simply a rearrangement of who owns what, but to be carried on in the same spirit with which capitalism is carried on, then eventually it would lead to the same economic and social ills that capitalism has produced. Rather, distributism requires a very different approach to mankind’s economic activity, an approach that is focused on providing for our legitimate needs but not on inflaming our fallen appetites for more and more consumer goods.

Capitalism, as Pope Pius XI characterized it in his encyclical Quadragesimo Anno, #100, is the separation of ownership from work. In other words, in a capitalist economy some people own the means of production and hire others to work for them. Now, strictly speaking, as Pius XI points out, there need not be anything unjust about such an arrangement, provided that a just wage is paid and the other stipulations of justice are observed. But in actual practice capitalism has rarely if ever observed the demands of justice. And it is not hard to understand why. An owner of capital has at least three strong temptations to exploit the economic process by turning it away from service to the common good toward merely his own enrichment.

First, since he is not directly the producer of a product, not himself a maker, he tends not to be focused on quality products out of pride of workmanship, but rather on producing by means of his workforce something that will sell. Attention to quality is governed by considerations of expenses versus profits, and even by consideration of possible product liability costs versus profits. In the most extreme form of capitalism, the corporation, most shareholders, although legally owners of the firm, have absolutely nothing to do with what it makes or sells, and hence are interested merely in their dividends or in rising share prices. And in one step even further removed, mutual funds, owners often do not even know what companies their funds invest in, and such investments are often short-term and change rapidly. It is true that in some old-fashioned capitalist enterprises the owner is involved in the business and may have some pride of craftsmanship. But as long as the owner is actively involved in the business, then there is still a distributist element in the firm, however small.

Secondly, because he is chiefly and directly interested in sales, not production of a quality product, if something will sell, that is pretty much the only question he considers. By means of advertising capitalists engage in persuasion to convince people to buy their products. In cases of authentic need, people know they need something and will go to seek it. If they are hungry, they will buy food, if they want something to read, they will buy a book. But advertising attempts to convince people that they need things they had no previous idea they needed. It directly stimulates people’s acquisitive appetites, and thus helps create a society preoccupied with consumer goods.

The third temptation which capitalist enterprise puts before an owner is to withhold justice from his workers. Workers are always a negative item in a capitalist balance sheet, and hence a strong temptation to reduce labor costs by holding down wages, laying off workers, moving jobs overseas, or even replacing the workforce with robots, if that is possible. For a capitalist all these choices can seem entirely rational. And they are all rational according to the logic of capitalism. But they all miss the point with regard to the logic of man’s economic activity, which is not about making unlimited profits for those who happen to hold economic power. If all workers could be replaced by robots, the workers might legitimately ask, Hey what about us? How are we supposed to obtain what’s necessary for us and our families if we are replaced by robots? How are we even supposed to buy what you yourself produce in your factories? But the actual trajectory of capitalism has too often seen workers replaced by machines, laid off, or underpaid, so that they cannot procure what they and their families need.

With distributism, however, while certainly social and economic difficulties would exist, the pathologies fostered by capitalism would be eliminated or at least reduced. A small business owner generally takes pride in his work and his customer service, and sees his craft or trade as more than merely a means of moneymaking. He usually derives from his work more than merely an economic return, for, as John Paul II pointed out in his first social encyclical, Laborem Exercens, the “various actions belonging to the work process…must all serve to realize [the worker’s] humanity, to fulfill the calling to be a person that is his by reason of his very humanity” (#6).

In addition, a distributist economy would not be complete without guilds or occupational groups, whose purpose is to orient economic activity toward fulfilling human needs rather than toward selling products of dubious quality or usefulness. And lastly, the employer\employee divide would be largely done away with under distributism. Larger enterprises would be run as worker cooperatives, and so decisions about automation or new equipment which could potentially replace workers would be made with more than an eye on profits alone. Certainly technological development would continue, but we should note that technology can take more than one direction. When capitalists make the decisions and directly or indirectly determine what kinds of technological research is done, then new inventions will often be of the kind which increase profits by making workers unnecessary. But in a distributist society research will focus on other ways to reduce costs or increase efficiency without necessarily reducing the need for workers – who, after all, will now themselves be the owners.

Because of this altered focus of the economic system, and of the society as a whole, many things that are taken for granted in a capitalist system would hardly exist under distributism. A short time ago I pointed out here why this would be the case with unemployment, certainly one of the perennial scourges of capitalism. In the next part of this article I will take up the subject of business cycles, and show how in a distributist economy their presence and importance would be considerably lessened.

There are many supposed facts of economic life that any student of economics, or even any observer of political and economic news, is familiar with, matters such as unemployment, corporate mergers and acquisitions, labor relations, business cycles, and so on. I call these supposed facts, not because they do not exist, but because their existence is contingent upon man-made economic arrangements, such as laws and tax structures or even cultural norms. Contrary to the impression one takes from writings both of professional economists as well as from journalists, these things and events are not natural and necessary facts like the changing of the seasons or the daily rising of the sun. They need not exist, certainly at least not to the extent that they do in a capitalist economy. Let us take one of the items from the above list, business cycles, and consider it more carefully.

What are business cycles? “A business cycle is a swing in total national output, income, and employment, usually lasting for a period of 2 to 10 years, marked by widespread expansion or contraction in most sectors of the economy,” is how the economist Paul Samuelson defines business cycles in his macroeconomics textbook.[2] Although everyone living in a capitalist economy is familiar with such cycles, or their effects, one might wonder why, apart from the special and external factors I will note below, such cycles exist. Consumer demand for necessary and reasonable goods normally will not fluctuate much – demand for food, clothing, housing, books and the like. Nor will the size of the workforce, and hence of the economy’s ability to provide consumer goods, usually experience short-term major decreases or increases. Thus there is no reason to expect the two most important factors in moving an economy, demand and the ability to supply that demand, to change significantly in a short period of time. Of course, external factors, such as famines, natural disasters, wars, migrations, and so on can cause a sudden and large increase or decrease in either demand or the capacity to supply that demand. As such, a distributist economy will be as subject to such external dislocations as is a capitalist economy. They are simply an inescapable part of life on this earth. But there are other factors which are peculiar to capitalism which have caused probably the majority of business cycles, at least the majority of those which have occurred in recent decades.

Capitalism is fueled by an imperative of production for the sake of sales, regardless of consumers’ needs or of their spontaneous desires for the goods or services in question. As such, it always rests upon foundations which are liable to be shaken. Distributism, on the other hand, rests upon the solid foundation of human nature and its natural needs and reasonable desires. But capitalist demand, which is usually artificially stimulated by advertising, is necessarily fickle or fragile. The artificial desire for larger and larger houses or cars, for example, tends to drive up prices of those goods, and can lead to so-called bubbles in which prices rise exponentially. Eventually these bubbles will burst. Such extreme up and down movements of prices can cause numerous related economic dislocations, such as panics or depressions, which are simply instances of severe business cycles.

History is marked by bubbles in which speculative prices were driven up far beyond their intrinsic value…. Speculative bubbles always produce crashes and sometimes lead to economic panics.[3]

In addition, although criminal greed is a characteristic of postlapsarian mankind in general, it is capitalism that has institutionalized such greed, and even praised and rewarded it. So, for example, exploitative or risky financial practices by banks are not always illegal, and even when illegal, those engaging in such practices often go unpunished or lightly punished because of the overall climate of opinion in a capitalist society, which tends to take a benign view of economic misdeeds. In the Middle Ages in Europe usurers were popularly regarded as among the most heinous of sinners, and this popular judgment was based on the teachings of society’s intellectual elite, theologians, canon lawyers, philosophers and so on. The popular climate of opinion in contemporary America, on the other hand, reserves whatever moral animus it still has for other types of misdeeds, and too often among Christians believers it is only sins against the 6th or 9th commandments which are seen as really worthy of condemnation. All this is the result of the pervasive commercial mentality which affects most Americans.

The point of all this is that the natural end of mankind’s economic activity is to supply our necessary and reasonable need for external goods and services. This is why God has given us the capacity to engage in economic activity. Given the fallen state of mankind, however, it is usually necessary to erect laws and institutions to guide our conduct toward its intended end. This distributism seeks to do in the economic realm. Capitalism, on the other hand, not only has done away with the safeguards against economic misdeeds which the Catholic civilization of an earlier age set up, but suffers from an inherent tendency toward economic exploitation and dislocation. And the commercial cultural climate which capitalism has produced fails to understand that any other way of carrying on economic activity is possible or feasible. But this is not the case. Catholics, in particular, who have a developed critique of economic conduct available in the Church’s social teaching, have an especially grave responsibility to form their thinking according to this teaching. Capitalism is not inevitable. There are other real possibilities. It is chiefly a matter of our having the will to bring about the changes that are necessary in our economic activity. But it can be done.

Notes:
1: Shaw and My Neighbour’s Chimney,” The New Witness, May 3, 1917, p. 13.

2: Macroeconomics, 16th ed., 1998, p. 125.

3: Ibid., p. 177.

You can find the original publications here and here.

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